It wasn’t that long ago when I was looking to find some serviced offices in Dublin. I was desperate to join the new Green tiger economy – the future powerhouse of Europe. Money had been spent, business was booming and property, particularly commercial property, was almost impossible to find.
Well, what happened? How did something so hot cool down so quickly? How did the good folk of Ireland manage to break it so badly? And it’s getting worse.
A government minister said on Sunday, Ireland may have to ask for another loan from the European Union (EU) and International Monetary Fund (IMF), because it will struggle to return to debt markets to raise funds next year.
In comments to The Sunday Times newspaper, Transport Minister Leo Varadkar became the first cabinet member to cast doubt in public on Ireland’s ability to raise cash on the bond market, because of punishing yields demanded by investors.
‘I think it’s very unlikely we’ll be able to go back next year. I think it might take a bit longer … 2013 might be possible but who knows?’ Varadkar was quoted as saying. ‘It would mean a second programme (of loans from the EU/IMF),’ he said.
Ireland, meanwhile, wants to tap investors for funding in 2012 before its 85 billion euros EU-IMF bailout runs out the following year.
But, investors believe Ireland will be unable to return to the market and instead will have to tap the European Union’s permanent rescue fund in 2013, which might require some restructuring of privately held sovereign debt.
Reflecting this medium-term risk, Ireland’s two-year and five-year papers are yielding close to 12 percent, more than its 10-year bonds on the secondary market.
Some 50 billion euros of the existing EU-IMF bailout has been earmarked for sovereign funding requirements with the remainder set aside to prop up the country’s ailing banks.
Earlier this month, the IMF said whatever was left over after recapitalising the banks could be channelled to the sovereign if there was a delay in returning to markets.
At the end of March, the Irish government said the banks needed 24 billion euros to bullet-proof their balance sheets, but Dublin hopes some five billion euros can be raised from imposing losses on junior bondholders and asset sales, meaning that 19 billion euros of the 35 billion would be tapped.
For outside investors looking at commercial property in Ireland, I would recommend steering well clear for the time being.
